Health plan would tax medical benefits

Congressional leaders searching for ways to fund an overhaul of the nation’s health care system are prepared to tax for the first time employer-provided medical benefits, an idea once opposed by President Obama that is now getting support from lawmakers on both sides of the aisle.

But growing bipartisan support for a tax on the most expensive health benefits belies the pending battle on how to use revenue to reform the health care system. And there are vocal opponents of the plan that Senate leaders are expected to introduce this week, including business groups and labor unions.

“None of the proposed ways of expanding health care benefits are going to be easy to enact politically,” said Mark McClellan, director of the Engelberg Center for Health Care Reform at the Brookings Institution.

Democrats favor taxing the most expensive plans and using revenues to help pay for a public insurance plan. Republicans favor giving individuals, instead of employers, a tax credit to buy private insurance. And opponents to the proposal say taxing the one aspect of the current health care system that works may not be a good idea.

Rep. John B. Larson, Connecticut Democrat and vice chairman of the party’s caucus in the House, said no one wants to add a tax on consumers. “All ideas are on the table,” he said, “even the bad ones.”

Congress still hasn’t come to a consensus on what the health care reform plans are going to look like. But whatever it shapes up as, the plan will have to be paid for, and Mr. Obama has said the plan must be budget-neutral for a decade.

Mr. Obama previously put up about $600 billion to pay for reform. In his weekly radio address on Saturday, he announced that his administration would save an additional $313 billion in reduced Medicare and Medicaid payments.

White House savings so far would cover nearly $950 billion. Rep. Charles B. Rangel, New York Democrat and chairman of the House Ways and Means Committee, put the estimated cost of a reform bill at $1 trillion, but warned Friday that’s a broad estimate. Others have put the estimate at $1.5 trillion or as high as $2 trillion.

Mr. Obama’s new spending cuts would reduce payments to health care providers who, under the reform proposals being considered, wouldn’t need the funding.

The plan assumes that several broad goals of Mr. Obama’s plan will come into fruition: that more Americans will be insured and that hospitals will operate more efficiently. For instance, hospitals that care for the uninsured wouldn’t need as much government funding because there will be fewer people without insurance.

“When it comes to the cost of health care, this much is clear: the status quo is unsustainable for families, businesses and government. America spends nearly 50 percent more per person on health care than any other country,” Mr. Obama said in his address Saturday.

But talk of taxing benefits is expected to dominate the debate on Capitol Hill this week. Senate Finance Chairman Sen. Max Baucus, whose committee is crafting the overhaul, is expected to introduce a plan that likely will tax employer-provided plans valued at more than $15,000 - dubbed the “Cadillac” of insurance plans - and will not go into effect until 2013, according to the Associated Press.

Under the current tax system, employers can value their employees’ health plans - which account for more than 160 million Americans - as non-taxable wages. For example, a person with a $40,000 salary and a $10,000 employer contribution to his health care plan pays $1,660 in federal income taxes. A person with a $50,000 salary and no employer-provided plan pays nearly double that - $3,160 - in federal income tax, according to the nonprofit, nonpartisan Kaiser Family Foundation.

The typical employer-provided insurance plan for a family of four is valued at $11,500 - which includes $10,000 in employer contributions and $1,500 in premiums paid by the individual, according to the group.

Mr. McClellan said the tax break sets up the artificial idea that health care plans are actually cheaper than they are, sometimes prompting consumers to purchase more than they need.

“Once you’re at that cap, this is going to be something for people to really consider,” he said. “It is likely to have a significant impact on reducing health care costs and encouraging more efficient health care spending.”

Mr. Obama criticized Sen. John McCain during the presidential campaign for suggesting the tax. But he’s now open to putting the idea on the table, Mr. Baucus told reporters after a recent White House meeting.